Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Devon IT, Inc. v. IBM Corp.

United States District Court, Third Circuit

December 30, 2013

DEVON IT, INC., et al., Plaintiffs,
v.
IBM CORP., et al., Defendants.

OPINION

JOEL H. SLOMSKY, District Judge.

I. INTRODUCTION

On May 11, 2012, the original parties in this case entered into a settlement agreement.[1] On October 5, 2012, the Court Ordered that [REDACTED] the settlement proceeds be placed in an escrow account with the Clerk of Court.[2] The funds were segregated by Court Order after a law firm that had represented Plaintiffs in this case asserted an attorney charging lien for unpaid fees on the settlement proceeds on its own behalf and on behalf of vendors it retained to assist in the litigation. The third-party vendors with an interest in the escrowed funds and their area of expertise are as follows: 1) EconLit, LLC, a damages expert; 2) ParenteBeard, LLC, a liability expert; and 3) FranklyLegal, LLC, a legal staffing firm that provided attorneys who performed document review. The events that led up to the assertion of the charging lien and creation of the escrow account are critical to the decision the Court must now make on the distribution of the funds.

The underlying litigation was highly contentious and considerable work was done by all counsel.[3] On May 11, 2012, the settlement agreement was executed, in which Defendant IBM and the Individual Defendants agreed to pay to Plaintiffs REDACTED] (Ex. M-77.) On May 16, 2012, the Mitts Law Firm, [4] which represented Plaintiff Devon in this case from 2009 until May 2012, filed a Motion to Withdraw as Counsel for Devon. (Doc. No. 143.) On May 22, 2012, the Mitts Firm filed the Application for an Attorney's Charging Lien or, in the Alternative, the Imposition of a Constructive Trust against the settlement proceeds. (Doc. No. 144.) On July 11, 2012, FranklyLegal, LLC filed a Motion to Intervene in this case. (Doc. No. 179.) On August 24, 2012, ParenteBeard, LLC filed a Motion to Intervene. (Doc. No. 196.) On September 14, 2012, EconLit, LLC filed a Motion to Intervene. (Doc. No. 203.)

On October 5, 2012, the Court dismissed the settled action between Devon and IBM. (Doc. Nos. 227, 229.) That same day, the Court granted the three Motions to Intervene (Doc. Nos. 224, 225, 226) and ordered IBM to deposit[5] with the Clerk of Court from the settlement proceeds. The funds were to remain in escrow pending a decision by the Court on the Charging Lien and/or Constructive Trust asserted by the Mitts Firm and the Motions of the Intervenors.[6] (Doc. No. 230.) Thereafter, six days of evidentiary hearings were held on claims to the escrowed funds.[7]

II. FACTUAL BACKGROUND

At the six day evidentiary hearing, a number of witnesses were presented. Testifying on behalf of the Mitts Firm was Wendy Rose Hughes, Esquire, an associate at the Mitts Firm, and Maurice Mitts, Esquire, co-founder of the Firm. Testifying on behalf of Intervenor EconLit, LLC was Dwight Duncan, the managing director of EconLit. Testifying on behalf of Intervenor FranklyLegal, LLC was Francis Welsh Jr., the principal of FranklyLegal. Testifying on behalf of Intervenor ParenteBeard, LLC was Glenn Scott Newman and James O'Brien, partners in its forensic litigation group. The following facts were elicited at the hearings.

A. March 2011 Fee Agreement Between the Mitts Firm and Devon

In July 2008, Devon entered into contracts with IBM. Under the terms of those contracts, Devon was to receive royalty payments. (Robert Mulhern, Jr., [8] Hr'g Testimony ["Mulhern"], 1/23/13 at 177.) Over a year later, after a dispute arose between Devon and IBM over the contracts, the Mitts Firm was retained to represent Devon in litigation with IBM. (Id. At the time, the Mitts Firm had been representing Devon entities in other cases pending in federal court. On June 16, 2010, the Mitts Firm filed the Complaint in this case on behalf of Devon against IBM and the Individual Defendants. (Id.; Doc. No. 1.) For the next twenty-three months, the Mitts Firm was counsel of record for Devon and handled this litigation as well as the other cases it was already handling for Devon.

On March 4, 2011, the Mitts Firm and Devon entered into a fee agreement.[9] The Fee Agreement was on "Mitts Milavec, LLC" letterhead and addressed to "John A. Bennett, M.D., President & CEO Devon International Group." The "Re" line of the agreement listed five cases covered by the Fee Agreement, including the litigation with IBM.[10] (Id.) Prior to this Fee Agreement, the Mitts Firm had billed Devon on a monthly basis for work performed at an hourly rate of $250 for all attorneys. (Maurice Mitts, Hr'g Testimony ["Mitts"], 11/15/12 at 86-87.) The March 4, 2011 fee letter substantially changed this arrangement and provides in full as follows:

Dear John:
As you know, Mitts Milavec, LLC (the "firm") is presently representing John A. Bennett, M.D., Devon Robotics, LLC, Devon Health Services, Inc., Devon International Group, Devon Medical, Inc., Devon IT, Inc., Devon Ad Tech, Inc. and Devon IT (Europe), Ltd. (the "Devon Entities") in 5 significant federal court cases (listed above) pending in the United States District Court for the Eastern District of Pennsylvania. This letter agreement confirms the understanding that we have reached regarding the payment of outstanding and future legal fees for the Firm's representation of the Devon Entities in the above referenced cases (the "Cases").
The Burford Group ("Burford")[11] is prepared to enter into an agreement to provide $4 million to purchase an interest in the IBM Case. The terms of Burford's agreement are the subject of separate agreements. This letter agreement is intended to set forth our collective understanding and agreement on the distribution of funds from Burford.
Burford has informed us that it will provide $2 million upon a successful ruling which denies the Defendants' pending Motions to Dismiss in the IBM Case. Burford will have the option, but not the obligation, to advance an additional $2 million 120 days after the first $2 million is funded. We anticipate that Burford will make this second $2 million funding, but it is Burford's choice whether or not to do so.
In the event of Burford funding, the following shall occur: From the first $2 million, the Devon Entities will receive $925, 000 and the Firm will receive $1, 075, 000. From the second $2 million from Burford, the Devon Entities will receive $250, 000 and the Firm will receive $1, 750, 000. We have agreed that upon the Firm's receipt of both of these payments:
1) all legal fees presently due to the Firm for our representation of the Devon Entities to date will be deemed paid in full. As of the date of this agreement, the arrearage for legal fees due and owing by the Devon Entities to the Firm total $899, 033.54.[12]
2) all legal fees that will become due to the Firm for the continuing representation of the Devon Entities in the Cases through the completion of any trial in each of the Cases shall be deemed paid in full. Any appeals in any of the Cases are not covered by this agreement. A separate fee agreement will be negotiated for any such appeals; and
3) from the date of this agreement going forward, all litigation expenses (including expert witness fees) that will be incurred by the Firm to represent the Devon Entities in these Cases will be paid by the Firm.

On the issue of the Burford second $2 million payment, if Burford elects not to fund, the Devon Entities can do one of two things:

1) provide Mitts Milavec with $1, 750, 000 from some other source (on the same time line as Burford or within 90 days after notice from Burford that it will not fund the second $2 million) and then the Firm will operate on the same terms as if the funds had come from Burford; or 2) pay current all of the Firm's then outstanding fees and costs, and thereafter continue to pay these fees and costs each month on a going forward basis with a structure that will prevent the recurrence of any arrearages.
As to the pending IBM Case, the Firm will also receive 5% of any recovery in that action, whether such recovery results from a settlement, judgment or otherwise ("Recovery"). This 5% will be paid to the Firm at the same time as the Devon Entities receive their portion of any Recovery.
Provided that the Firm timely receives all of these payments, it is further agreed that if the Firm dissolves, merges into some other firm or if Maurice Mitts leaves the Firm, he will continue to represent the Devon Entities in the Cases without payment of any further sum by the Devon Entities in accordance with paragraphs 2 and 3 above.
The parties to this agreement understand that the Burford funding is still contingent upon a favorable ruling from the Court in the IBM Case, and the terms of this agreement shall only become effective upon such a favorable ruling (as defined in the Burford Term Sheet dated January 11, 2011) and upon the Firm and Devon Entities actual receipt of the funding by Burford as described above. Time is, of course, of the essence for all of us in this matter.

(Ex. M-1A, footnote omitted). The letter is signed by "Maurice R. Mitts" and "Approved, Accepted and Agreed to" on March 4, 2011 by "John A. Bennett, M.D." individually and on behalf of the various Devon Entities. (Id. Robert B. Mulhern, Esquire, the General Counsel for Devon, was copied on this correspondence. (Id.; Mulhern, 1/22/13 at 201.)

The Fee Agreement references "a favorable ruling (as defined in the Burford Term Sheet dated January 11, 2011)." (Ex. M-1A.) The Burford Term Sheet states "Funding shall be contingent on the Court's denial in all respects of IBM's Motion to Dismiss - specifically, that the Court denies dismissal of any and all claims against any and all defendants." (Ex. M-1K.)[13]

The IBM litigation included a claim under the Racketeer Influences and Corrupt Organizations ("RICO") statute, 18 U.S.C. § 1961 et seq., which allows for statutory fee shifting and recovery of costs. (Mitts, 11/15/12 at 116.) Thus, Mitts, Burford, and Devon expected to secure a judgment that included an award of costs and fees. (Id. at 117.) This expectation "resulted in [the Mitts Firm] doing detailed time entries and keeping track of all of our expenses." (Id.) Mitts testified that he kept track of his time on an hourly basis for the following three reasons: "The first thing is that's how I actually manage what's going on in the office. So the first piece is that. The second piece is for the element of attorney's fees. And the third piece is to have a sense of what is it costing us to do this case." (Mitts, 11/29/12 at 91.) The Mitts Firm forwarded these monthly invoices to Devon for purposes of giving Devon "a really good understanding of all that we're doing over time." (Mitts, 11/15/12 at 158; Exs. M-9, M-176A-E.) Despite agreeing in the Fee Agreement to charging a flat fee for all the cases plus accepting a bonus of five percent of any recovery in the IBM litigation, Mitts drew against the funds as if his firm was being retained on an hourly basis. On cross-examination Mitts conceded:

Q.... you made a decision, sir, to take money out of the account and pay your firm based on an hourly basis. But you had agreed to accept four million in total for all the litigation though the time of trial, plus other cases and your expenses, correct?
A. Yes.

(Mitts, 11/29/12 at 219.)

B. Forward Purchase Agreement Between Devon and Burford

The agreement between Devon and Burford is known as a "Forward Purchase Agreement." A Forward Purchase Agreement has its genesis in an English document which is "not a loan" by a third-party financer. Rather, the third-party "actually buy[s] a piece of the case... they actually have an ownership interest in the case." (Mitts, 11/15/12 at 106.) Therefore, in effect, through the Forward Purchase Agreement, Burford purchased a portion of the IBM litigation by advancing funds to support the litigation. In the Agreement, Burford is referred to as the "Purchaser" and Devon is referred to as the "Forward Seller." On March 18, 2011, Purchaser Driftwood Investments Limited[14] - the special purpose entity created by Burford to fund the IBM litigation - and Forward Seller Devon entered into several Agreements. (Ex. M-1B.) The Forward Purchase Agreement executed here is of particular importance.[15] (Id.)

The Forward Purchase Agreement between Burford and Devon provided that Burford "shall make payment of the Prepaid Amount by wire transfer in accordance with Schedule I which shall constitute a full discharge of the Purchaser's payment obligations under this Agreement." (Ex. M-1B at 3.) The Prepaid Amount listed in Schedule 1 is "US $2, 000, 000." (Id. at 18.) In addition, the Agreement provided that Burford would increase its funding for a greater share of any proceeds Devon would receive if successful in the IBM litigation. A provision in the Agreement, known as the Purchase Option, stated that Burford "may make payment of the Purchase Option Price to [Devon] by wire transfer in accordance with Schedule 1 (the "Purchase Option") in return for an increase in the Resolution Amount applicable to the exercise of the Purchase Option provided in Schedule 2." (Id. at 4.) The Purchase Option Price listed in Schedule 1 is an additional advance of"US $2, 000, 000." (Id. at 18.) The Resolution Amount is listed in Schedule 2 and would raise Burford's share of the proceeds to $16, 000, 000.[16] (Id. at 20.) According to Mitts, the Forward Purchase Agreement is a "mechanism [that] provided that the first sixteen million dollars of the case, any recovery, whether it's by settlement [or] judgment, goes to Burford." (Mitts, 11/15/12 at 106.).

The Forward Purchase Agreement requires Devon to "[r]etain and remunerate the Nominated Lawyers to prosecute the Litigation Claim vigorously in a commercially reasonable manner and bring about reasonable monetization of the Litigation claim" and "promptly pay all costs and expenses necessary or reasonably desirable in association with the Litigation Claim." (Ex. M-1B at 6.) Schedule 1 lists the Nominated Lawyers as "Mitts Milavec, LLC."[17] (Id. at 18.) On March 18, 2011, Bennett, on behalf of Devon, sent the Mitts Firm as the Nominated Lawyers a letter informing them of the Forward Purchase Agreement and providing instructions based on the terms of the Agreement. (Ex. M-1E.)

In accordance with the Forward Purchase Agreement, Burford distributed two $2 million tranches of funding. (Mitts, 11/15/12 at 118.) In April 2011, Burford disbursed the first tranche. Approximately $1, 064, 000 was paid to the Mitts Firm. These funds covered Devon's delinquent invoices. The remaining $925, 000 was paid to Devon. (Id. at 160-62.) In August 2011, Burford distributed the second tranche of funding. (Id.) From this tranche, the Mitts Firm had agreed in the Fee Agreement that $250, 000 would be paid to Devon. Devon, however, made this money available to the Mitts Firm to pay another vendor assisting in the IBM litigation, Kroll Ontrack ("Kroll"), a company that handled electronic document management. The Mitts Firm had asked Devon to advance the $250, 000 to cover the Kroll expense, and Devon agreed to do so. The Mitts Firm, however, never used the money to pay Kroll for its services (Ex. M-222 at ¶4; Mitts, 11/29/12 at 76-77.)

C. Legal Services Performed During the Course of the IBM Litigation

1. Discovery in the IBM Litigation

In June 2011, discovery in the IBM litigation commenced. (Doc. No. 62 (discovery plan).) Discovery was considerable, resulting in the parties producing nearly five million pages of documents. (Exs. M-198, M-199.) To manage this large production of documents, Devon signed an engagement letter with Kroll in June 2011.[18] (Ex. M-3.) According to Wendy Hughes, an attorney with the Mitts Firm, "Kroll was the document management vendor that [the Mitts Firm] utilized on Devon's behalf in the IBM litigation. They were involved and critical to all aspects of processing the electronic data and the hard-copy data for our document reviewers to review for discoverability, as well as for production then to defendants." (Hr'g Testimony ["Hughes"], 11/14/12 at 207.)

The Mitts Firm encountered a number of challenges during thee-discovery process. For example, the initial Kroll pricing proposal was for 200-280 gigabytes of data, but ultimately 2, 500 gigabytes of data was produced. (Ex. M-2); (Hughes, 11/14/12 at 210-12.) As a result, in August and September 2011, to streamline the production and as a cost-saving measure, Robert Mulhern, Devon's General Counsel, authorized the Mitts Firm to produce Devon's documents to IBM without first reviewing them, as would ordinarily be done in litigation. (Mulhern, 1/23/12 at 6-7.)

Kroll submitted invoices to Devon totaling $712, 920.49. (Ex. M-82 through M-91.) When Mulhern received the Kroll invoices, he forwarded them to the Mitts Firm for payment, explaining in one correspondence: "Pursuant to our agreement that your firm is responsible for costs, after receipt of the second tranche of Burford funding we request you make payment directly to Kroll Ontrack." (Ex. D-198; Mulhern, 1/23/13 at 210-12; Mitts, 11/15/12 at 83-85, Mitts, 11/29/12, 102-106.) Thereafter, Mitts was involved in extensive negotiations between Devon and Kroll to seek a compromise on the Kroll invoices. The Mitts Firm used the problems it had encountered with the database as a reason for Kroll to reduce its billing. (Mitts, 11/15/12 at 83-85.)

On December 22, 2011, Mitts sent Bennett and Mulhern an email summarizing the status of the IBM case:

We have exhausted the Burford money and we forecast it will take at least $2 million to take this case to trial. I have attached a spreadsheet which details where we have used the Burford funding that you will find helpful. From the "big picture" perspective, please consider the following: of the $4 million we received from Burford, ($925, 000 was paid back to Devon, $1, 086, 928 paid outstanding fees owed for McKesson, Itochu, Gaspar and the IBM cases) which left approximately $2 million for the IBM case since last April.
...
From our recent discussions, I understand that Devon is currently too cash strapped to provide this additional funding to take this case to trial. If my understanding of Devon's current financial situation is correct, then we need to approach Burford for more money now.

(Ex. M-10 at 1-2.) Attached to the email was a "Litigation Cost Summary from April 6, 2011 through November 30, 2011" listing various expenses. (Ex. M-10.) According to Mitts, this December 22, 2011 email was a proposal to modify the March 2011 Fee Agreement. (Mitts, 11/29/12 at 110-14, 149.)

Mulhern testified that "what I understood [from this December 22, 2011 email] is that these expenses listed here [in the attached litigation cost summary] had been paid; that is, the Kroll, FranklyLegal, Reliable Court Reporters, and MCS had been paid, and that the firm had zero dollars left out of the four million dollars that had been provided by Burford." (Mulhern, 1/24/13 at 22.) This turned out not to be the case, because the "Litigation Cost Summary" attached to the email was "a mixture... of things that have been paid and things that haven't been paid." (Mitts, 11/29/12 at 153; Ex. M-10.) Mitts had only paid part of the FranklyLegal invoices, and had not paid Kroll the $250, 000 from the second tranche of funding as Devon had instructed. (Mulhern, 1/24/13 at 22-23.) Moreover, at the time this email was drafted, the Mitts Firm had approximately $720, 000 on hand from the second $2 million tranche. (Mitts, 11/29/12 at 154; Mulhern, 1/24/13 at 25.) Further, on three occasions subsequent to this email, funds were disbursed to the Mitts Firm from the Firm's account to cover its own legal fees and expenses.[19]

Mulhern testified that the December 22, 2011 email was the first time he had heard of any financial problems with the IBM litigation, and he "was extremely shocked." (Mulhern, 1/24/13 at 17.) On December 27, 2011, Mulhern responded to Mitts:

I spoke with John [Bennett], and he approves approaching Burford and requesting an additional $2 million on the best terms possible for us. Hopefully they will agree to accept $4 million for that additional investment. On the bonus issue [Bennett] wants to hold that open until we see what Burford comes back with.

(Ex. M-11.) According to Mitts, this email "approves approaching Burford" and is an acceptance of his proposal to modify the March 2011 Fee Agreement. (Mitts, 11/29/12 at 110-14, 149.) Mitts testified that "the bonus issue" in the email refers to the five percent contingent fee set forth in the March 4, 2011 agreement, and that the bonus is the only part of the Fee Agreement which remains unmodified. (Mitts, 11/15/12 at 167-68; Mitts, 11/29/12 at 211.)

As a result of this exchange, on December 28, 2011, Mitts emailed Aviva Will, who is the managing director of Burford and formerly worked as counsel at the law firm Cravath, Swaine & Moore and as Assistant General Counsel at Time Warner Inc. (Mitts, 11/15/12 at 139, 146-47; Ex. M-12.) Mitts provided Will with a litigation update and requested additional funding. His email reads as follows:

We truly appreciate the $4 million of funding that we have received from Burford and we have put all of that money to good use. We now forecast that it will take at least $2 million more to get this case to trial. We have exhausted all of the funds that we received and we are deep in the heart of the discovery. Our bum rate has soared since October in part because of the massive document production and the need to prevent Jones Day[20] from benefiting from its strategic late document productions. I have discussed this with the client and we are authorized to request this additional funding from Burford. Obviously we now know so much that is helpful to our case, but we need additional funding to complete discovery and to drive this case to trial. Without the additional funding, we simply cannot do either.

(Ex. M-12.) On January 3, 2012, Will sent Mitts an email saying "I'm wondering if it makes sense for me to come down to philly [sic] tomorrow to meet with you to continue the discussion and to see how we can find a good fix." (Ex. M-13.)

On January 6, 2012, Will attended a meeting at the Mitts Firm where attorneys made a presentation on the status of the IBM litigation, the discovery process, the use of vendors, the work of experts drafting reports and running damage models, and the burn rate of fees and expenses. (Mitts, 11/15/12 at 185-86.) Presentations were also made by two representatives of ParenteBeard and by a representative of EconLit. (Id.) In addition, during Will's visit, she observed FranklyLegal reviewers conducting document review on the Kroll database. (Id. at 186.) Mitts testified that:

the purpose of the meeting was to update her, and to give a sense where we are, and so that she had a basis to go get additional funding. So she learned where we were, and what there was to do.... And [Will] said to [Mitts] you keep working; we're going to cover - while we're working out our deal with Devon, we're going to cover whatever these expenses are. And she said after meeting with the team, I'm going to need to make a presentation to the board. And I'm only going to be able to do this one time. So we need to figure out what we're going to need. And I'm going to need to get an opinion from outside counsel who can... verify the wisdom of what you're doing.

(Id. at 188-89.)

Will recommended that Kellogg Huber Hansen Todd Evans & Figel, PLLC ("Kellogg")[21] serve as outside counsel to advise on the merits of the case and the amount of additional funding. (Mitts, 11/15/12 at 194.) On January 11, 2012, Kellogg was brought on as co-counsel in the IBM litigation with the understanding that Burford would pay Kellogg's fees. (Id.; M-242.) Mitts testified that shortly thereafter Kellogg's representation transformed into active representation of Devon in the litigation. (Mitts, 11/15/12 at 194; see also M-242, Kellogg's proposal of substantive work it will perform.) In the middle of February 2012, Bennett appointed Kellogg lead counsel in the IBM Litigation, and the Mitts Firm became supporting counsel. (Mitts, 11/15/12 at 201.) As a result, Kellogg took responsibility for the work performed by the experts and asked the Mitts Firm to be responsible for paper discovery, including document production, interrogatories, request for admissions, and, to some extent, depositions. (Id. at 213.) Mitts testified that use of a co-counsel was not within the terms of the March 4, 2011 Fee Agreement and therefore was a modification of the agreement. (Mitts, 11/15/12 at 197-98.)

On February 28, 2012, Mitts sent Mulhern a letter regarding Kellogg assuming full responsibility as lead counsel. Mitts wrote that Burford had "agreed to consider additional funding and to pay interim case and expert expenses incurred by our firm until a new funding arrangement was finalized. We have relied on those assurances and on Devon's readiness to accept this new funding with a modification to Burford's purchase interest in this case." (Ex. M-23 at 2.) Mitts requested "a workable economic structure going forward that reflects our new transitional and supporting role." (Id. at 5.) Specifically, Mitts proposed new terms for a fee agreement as follows:

Hourly fees: Our fees for work going forward in the IBM litigation will be based on a blended rate of $250 per hour. You agree to pay our invoices within thirty (30) days of issuance.
Contingent Interest in Settlement or Recovery: For the IBM case, Mitts Milavec, LLC shall be entitled to receive 5% of any recovery, by settlement, verdict or judgment, of any gross amount in excess of$50, 000, 000 million (after the repayment of any costs paid by any party).
Costs and Expenses: Litigation costs or expenses incurred going forward, if any, will be reimbursed within ten days of monthly invoices submitted by Mitts Milavec, LLC to Devon or by a third party administering any litigation fund.

(Id. at Ex. B.;) (Mitts, 1/22/12 at 57.) This offer was never accepted by Devon. (Mitts, 1/22/12 at 58.)

Mitts testified that in March 2012, Burford had a board meeting where there was a presentation for approval of almost $6 million in additional funding, including over $2 million for Kellogg's fees. (Mitts, 11/29/12 at 21-22.) Mitts testified that in April 2012 "Burford had approved additional funding[, but] Devon and Burford had decided that they would try to settle the case, and if that were possible they wouldn't have to draw additional funding to litigate the case, and so they put [the Mitts Firm] into a go slowly mode[.]" (Id. at 37.)

Meanwhile, on Monday March 19, 2012, Mitts reported to Mulhern that the negotiations with Kroll became heated when Kroll demanded $250, 000 by Friday or it would shut down the database containing all electronic discovery in the IBM litigation. (Ex. D-92.) On March 22, 2012, Mulhern emailed Mitts stating "[i]f it is a question of Devon paying a few thousand dollars, I can try to see about [that]. However, we cannot pay any substantial amount.... [T]his should not be our problem. We thought that you were paying the Kroll bills and did not learn until months later (I think in January) that you had not paid any of the invoices that I had forwarded to you." (Ex. D-93.) Mitts testified that he was not aware of a final proposal stemming from the Kroll negotiations. (Mitts, 11/15/12 at 83-85.) On March 23, 2012, Kroll shut down its database, thus ending the document review. (Hughes, 11/15/12 at 60.) Thereafter, Kellogg was responsible for negotiating with Kroll on the payment of outstanding fees. (Ex. M-250.)

a. Work Performed by Intervenor EconLit

On November 18, 2011, Mitts emailed Dwight Duncan, the sole principal of EconLit, to ask whether EconLit would be interested in being retained as a damages expert in the IBM litigation. (Dwight Duncan, Hr'g Testimony ["Duncan"], 11/14/12 at 22; Ex. E-2.) EconLit sent a draft engagement letter to the Mitts Firm, which designated Devon as the party responsible to pay EconLit. (Duncan, 11/14/12 at 23-24.) Upon request, the letter was revised so that the Mitts Firm was responsible to pay EconLit. (Id.) On December 12, 2011, EconLit executed the engagement letter and sent the letter to the Mitts Firm. (Duncan, 11/14/12 at 16; Ex. E-1.) The EconLit engagement letter states, in relevant part:

EconLit understands that Devon IT, Inc. ("Devon IT"), Devon A.D. Tech, Inc. ("Devon AD"), and Devon IT (Europe), Ltd. ("Devon Europe") (collectively "Devon") have retained Mitts Milavec, LLC ("Mitts Milavec") to litigate this matter. EconLit further understands that Mitts Milavec will be responsible for payment of fees and costs... If EconLit is required to retain counsel in connection with collection of unpaid invoices, you agree to be responsible for reasonable attorney's fees and associated litigation costs incurred in association with such collection efforts.[22]

(Ex. E-1.) Duncan testified that he understood that he was doing the work for the Devon entities, but there was a third-party funder involved that would provide funds through Devon and/or the Mitts Firm to pay EconLit. (Duncan, 11/14/12 at 23-24.) On January 5, 2012, EconLit provided a preliminary budget estimating that its work would cost between $400, 000 and $600, 000. (Id. at 17.)

On January 20, 2012, an attorney with the Mitts Firm sent an email copying numerous vendors, including Duncan of EconLit, stating: "Our experts should take this email as authorization to work with the Kellogg Huber team, who have entered their appearances and have been admitted pro hac vice in the case as our co-counsel." (Ex. E-7.) As noted previously, on January 11, 2012, Kellogg had become co-counsel in the IBM litigation with the understanding that Burford would pay Kellogg's fees. (Mitts, 11/15/12 at 194; M-242.) By the middle of February 2012, Bennett appointed Kellogg as lead counsel in the IBM litigation, and the Mitts Firm became supporting counsel.[23] (Mitts, 11/15/12 at 201.)

On March 10, 2012, Mitts emailed Mulhern to report that Aviva Will, "a fairly senior person at Burford, " "wanted me to assure the Econolit [sic] people that they are definitely getting paid, but that she needs numbers to sell the additional funding to the [Burford] board this week." (Duncan, 11/14/12 at 35-37; Ex. M-27 at 1-2.)

On March 15, 2012, Kellogg emailed EconLit stating "you've calculated a preliminary damages number in the range of $40-50 million" and requesting a conference call to "get a deep dive into the analysis underlying the model." (Ex. E-10.) Under Kellogg's direction, EconLit "develop[ed] many different damage models exploring different damage theories, [and] different present value cap computations." (Duncan, 11/14/12 at 16; See also, Ex. E-24.) EconLit also assisted in developing topics for Federal Rule of Civil Procedure 30(b)(6) deposition notices and requests for admissions. (See Exs. E-3, E-4, E-5, E-6.) Kellogg and EconLit engaged in numerous phone calls lasting hours, and in correspondence reviewed each line of the damage model and the assumptions upon which they were based. (Duncan, 11/14/12 at 33-34; see also Exs. E-11, E-16, E-17.)

By the middle of March 2012, EconLit had discussions with Kellogg and the Mitts Firm regarding outstanding EconLit invoices, totaling approximately $300, 000. (Duncan, 11/14/12 at 35-37.) Duncan testified that "we were being provided assurances to keep working, that the information had been well-received and that they were assuring us that we would be paid by the third-party through Devon for the work that we were doing." (Id. at 36.)

On March 29, 2012, Duncan received an email from an attorney at Kellogg which noted: "[m]y understanding is that Devon is expecting to resolve its funding issues in the next few weeks, and as soon as that is done, [Devon] will be able to resolve the outstanding invoices." (Ex. E-12; see also Duncan, 11/14/12 at 38-40.) This email was of concern to Duncan because it was the first time he became aware of a funding issue with Devon, rather than the third-party funder. (Duncan, 11/14/12 at 38-40.) As a result, on March 30, 2012, Duncan emailed Kellogg and the Mitts Firm stating that since its retention on December 12, 2012, EconLit had accrued outstanding fees totaling $307, 000. (Ex. E-13.) Duncan also wrote that prior to the March 29, 2012 email from Kellogg, "all communication regarding payment had indicated that a third party was accepting responsibility for payment and payment was forthcoming." Duncan concluded:

After looking at our engagement letter yesterday, I observed that the law firm of Mitts Milavec is responsible for payment. I would like to have a call today to discuss the status of our retention and who the responsible party is for payment. If we need to put a new engagement letter in place to properly reflect any changes in the various parties' status, I would like to do so as soon as practical. EconLit has been working vigorously, at your collective direction, to digest the large volumes of information, conduct multiple client interviews, perform industry research, purchase industry data, and participate in multiple conference calls with counsel. We need to get the payment issue resolved promptly in order to continue at the current pace and be able to meet the current disclosure deadline.

(Ex. E-13.)

On March 30, 2012, after Duncan spoke with someone at Kellogg in which he was told he would not be paid for a couple of weeks at the earliest, Duncan emailed an EconLit employee and informed him that "we are pencils down after today." (Ex. E-15.) Duncan testified that this meant EconLit would not do any further work on the IBM litigation after March 30, 2012. (Duncan, 11/14/12 at 52.) Before ceasing its work, EconLit had provided their entire damages model to Kellogg for use in settlement discussions. (Exs. E-16, 17.)

EconLit seeks $385, 425.14 for services performed and pre-judgment interest. (Doc. No. 292 at 16.) This amount accounts for a previously paid $10, 000 retainer. (Dec. No. 292 at 16.) The net amount sought includes: $372, 089.31 in attorney's fees and costs[24] and $23, 335.83 in interest.[25] (Id.)

b. Work Performed by Intervenor ParenteBeard

ParenteBeard, LLC is a large accounting and consulting firm based in Philadelphia. (Glenn Newman, Hr'g Testimony ["Newman"] 11/14/12 at 116.) Two partners in the forensic and litigation group at ParenteBeard testified during the evidentiary hearing: Glenn Newman and James O'Brien. The forensic and litigation consulting practice of ParenteBeard assists "in looking at disputes, looking at accounting records, making analyses and projections and evaluating it for the purpose of a dispute." (Newman, 11/14/12 at 116.)

In November 2011, the Mitts Firm contacted ParenteBeard about retaining it as an accounting expert on liability issues in the IBM litigation, resulting in a November 8, 2011 meeting between the Mitts Firm and O'Brien. (Id. at 117; James O'Brien, Hr'g Testimony ["O'Brien"], 11/14/12 at 167-68.) On December 1, 2011, ParenteBeard submitted a proposed standard engagement letter. (Ex. PB-1; see also Newman 11/14/12 at 118-19.) The Mitts Firm requested a modification of the letter so that only the Mitts Firm, and not Devon, was bound by the agreement. (Ex. PB-1; see also Newman 11/14/12 at 118-20.) On December 14, 2011, Newman and Mitts executed the final engagement letter. (Ex. PB-2.) The letter states in relevant part:

Thank you for this opportunity to provide our services directly to Mitts Milavec, LLC's ("Attorneys").
...
Our invoices for fees and expenses will be presented approximately every 15 days as work progresses and are due upon presentation. The Attorneys agree to pay the invoices via wire (wire instructions attached) within ten (10) business days from the date of presentation of each invoice which will be delivered via email. In accordance with firm policy, we require a $25, 000 retainer to initiate our services. The retainer will be applied to our final invoice; any unused amount will be returned. Invoices for which payment is not received within thirty (30) days of invoice date shall accrue a 1.0 percent per month compound late charge. We reserve the right to halt further services until payment is received on past invoices.

(Ex. PB-2.) Newman testified that he believed that Devon was ultimately paying for the services of ParenteBeard. (Newman, 11/14/12 at 120.) Moreover, it was the understanding of Newman that ParenteBeard invoices were being forwarded to Devon by the Mitts Firm. (Id. at 129.) The $25, 000 retainer required by the engagement letter and the first invoice submitted by ParenteBeard were paid timely. (O'Brien, 11/14/12 at 170-71.)

ParenteBeard had approximately twelve people assigned to the IBM litigation project. (Id.) O'Brien ran the project, processed the work, and led the team on a daily basis. (Id.) ParenteBeard's role in the IBM litigation, "was on the liability issues, trying to help prove from an accounting standpoint the conduct that was alleged in the matter, that IBM was doing, that against Devon." (O'Brien, 11/14/12 at 179.) During discovery, ParenteBeard "[a]ssisted on numerous document requests, discovery issues as well as depositions preparation and attendance" and completed "[v]oluminous document identification, review and analysis." (Ex. PB-13.)

On January 6, 2012, O'Brien and another employee of ParenteBeard attended a meeting with several attorneys from the Mitts Firm and with Aviva Will of Burford. (O'Brien, 11/14/12 at 170-71; Doc. No. 292 at 9.) O'Brien provided a status update on the forensic investigation being performed by ParenteBeard and a detailed budget for future work with an estimated burn rate of approximately $50, 000 to $85, 000 a week. (ML. at 171-72.) That same day, ParenteBeard provided the Mitts Firm with a detailed estimate of the cost to perform additional project requirements, which was shared with Devon and Burford. (Ex. PB-4, M-244.)

On January 20, 2012, O'Brien received the same email sent to EconLit, stating: "Our experts should take this email as authorization to work with the Kellogg Huber team, who have entered their appearances and have been admitted pro hac vice in the case as our co-counsel." (Ex. PB-11.) At this time, according to O'Brien, "[t]here were numerous depositions going.... ParenteBeard attended the depositions, assisted with creating deposition questions, and [was] also assisting with the document discovery, so there were documents that [ParenteBeard was] finding that were being used in the depositions." (O'Brien, 11/14/12 at 175-76.)

On February 8, 2012, Newman and O'Brien met with an attorney at the Mitts Firm to discuss the status of unpaid invoices. (Newman 11/14/12 at 122-23; Ex. PB-21; O'Brien 11/14/12 at 179.) Prior to that meeting, Newman had been told "there was some kind of logjam but it had been approved and we could expect payment any day." (Newman 11/14/12 at 122.) O'Brien describes the meeting as an attempt to get "a negotiated settlement on getting us paid. But also having us complete the work product." (O'Brien, 11/14/12 at 179.) At the meeting, Newman learned "that there were some issues that were starting to arise. In other words, I was asked if I would be willing to revise our estimate on a lump sum basis to complete all of our work and issue our reports." (Newman 11/14/12 at 123.)

On February 9, 2012, Newman emailed an attorney at the Mitts Firm, quoting the engagement letter which states ParenteBeard may terminate engagement for failure to pay. The email also summarized critical events that occurred during ParenteBeard's engagement, listing the services provided and the invoices and status of payment. It also included an updated budget with some caps, "laying out some different [payment] options." (Id.; Ex. PB-13.) The email concluded with a statement that ParenteBeard could no longer continue to work without payment and attached a condensed expert report outline. (Id.; Ex. PB-13.) Mitts forwarded Newman's email to Mulhern and Bennett, noting: "Burford has confirmed to me that the experts will be paid, but they haven't yet. This just hit a critical stage where the accountants are stopping work now until this is resolved. This imperils the entire case and must be resolved now." (Ex. M-244.)

On March 13, 2012, Mulhern arranged a meeting with Newman at Devon's office, to "inquire[] about ParenteBeard's unpaid invoices and address the possibility of ParenteBeard completing work on a reduced flat fee basis." Mulhern personally knew Newman and thought that a face-to-face meeting might help the situation. (Exs. PB-16, PB-18 at ¶¶ 8, 9; Mulhern, 1/24/13 at 72.) During the course of the meeting, Mulhern inquired about whether ParenteBeard would accept $250, 000 as full payment for its work, including the expert report. (Newman, 11/14/12 at 127-29.) Newman found this offer unacceptable because the original estimate for ParenteBeard's fees in this case was between $900, 000 and $3 million. (Id.)

On March 22, 2012, Newman sent Mitts a Demand for Payment letter summarizing outstanding invoices totaling $463, 516.76.[26] (Ex. PB-17; see also Ex. PB-18, Newman affidavit supporting request for outstanding invoices). ParenteBeard's total claim is $639, 495.32, which includes outstanding invoices plus interest as of April 1, 2013[27] and attorney's fees and costs. (Ex. PB-19; Doc. No. 292 at 2.)

c. Work Performed by Intervenor FranklyLegal

Francis P. Welsh, Jr. is the principal of FranklyLegal, LLC, a Philadelphia based "legal staffing company... that provides professionals to work on cases and projects and other staffing needs that law firms, businesses and in-house counsel may need." (Francis P. Welsh Jr., Hr'g Testimony ["Welsh"], 1/22/13 at 178.) In September 2011, Mitts contacted FranklyLegal to discuss potential staffing for an electronic document review project. (Id. at 178-80.) Mitts negotiated rates with FranklyLegal. (Id.) Because Mitts was a new client, for business development reasons, FranklyLegal substantially lowered its standard rate from approximately $45-49 an hour to $32 an hour. (Id.)

On September 23, 2011, FranklyLegal sent an engagement letter to the Mitts Firm listing the "CLIENT: Mitts Milavec, LLC" and the Matter as "Devon Review Project." (Ex. M-92.) The engagement letter provides in relevant part:

... your firm or company (the "client") will be billed every week at the agreed upon rate, and payment of undisputed amounts will be due within thirty (30) days....
In the event that the client fails to pay the undisputed charges of FranklyLegal when due (whether for temporary or permanent placement of personnel), the client shall pay interest charges on overdue invoices at the less ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.